Retailing merger and acquisition activity 1973-1992 : pre-acquisition conditions and post-acquisition performance

Mergers and acquisitions (M&A) have played a fundamental role in changing the face of the retail industry over the past two decades. The FTC and others have listed five motivating factors behind M&A activity, including a desire for profitability in the form of returns, acquisition of undervalued companies, increasing sales growth, and effective utilization of resources. A study of over 450 retail firms (acquiring, targets, and nonactive between 1973 and 1992) was conducted to test for pre-acquisition conditions and post-acquisition performance. A total of eleven variables internal to the individual firm, including market-to-book value, firm size, cash flow, earnings per share, price-earnings ratio, growth, liquidity, leverage, and returns (ROE, ROA, and ROS), were operationalized. A GLM procedure and subsequent Bonferroni comparions showed that, contrary to other published results, only the size of the acquiring firms was significantly different than that of the target firms. However, non-active firms were found to differ significantly from acquiring and target firms in market-to-book value, cash flow, earnings per share, and return on equity. A discriminant analysis was used to determine the value of these variables in predicting the type of activity in which a retail firm may be likely to participate. Accuracy rates of 30.67% for acquirers, 89.19% for targets, and 71.43% for non-active firms were obtained. A post-hoc discriminant analysis indicates that the low rate of accuracy for the prediction of acquiring firms can be explained in the context of the deregulation of the banking industry. The examination of post acquisition performance of acquiring firms indicates that retail firms had significantly lower ROE and earnings, raising questions as to the efficacy of acquisition as a growth strategy.